MAG SILVER CORP.   Unaudited Condensed Interim Consolidated Financial Statements (expressed in thousands of US dollars)   For the three and nine months ended September 30, 2023   Dated: November 10, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

A copy of this report will be provided to any shareholder who requests it.

 

 

 

 

 

VANCOUVER OFFICE Suite 770 800 W. Pender Street Vancouver, BC V6C 2V6

604 630 1399 phone 866 630 1399 toll free 604 681 0894 fax

TSX: MAG NYSE American : MAG info@magsilver.com

 

 

 

 

 

MAG SILVER CORP.
Condensed Interim Consolidated Statements of  Income and Comprehensive Income
For the three and nine months ended September 30, 2023 and 2022
(In thousands of US dollars, except for shares and per share amounts - Unaudited)
				For the three months ended								For the nine months ended
				September 30,				September 30,				September 30,				September 30,
				2023				2022				2023				2022
		Note		$				$				$				$
Income from equity accounted investment in Juanicipio		6			13,692				11,781				44,030				37,890
General and administrative expenses		4			(4,094	)			(3,003	)			(10,599	)			(8,555	)
General exploration and business development					(468	)			(20	)			(610	)			(111	)
Exploration and evaluation assets written down		7			-				-				-				(10,471	)
Operating income					9,130				8,758				32,821				18,753
Interest income					663				216				1,868				335
Other income		9			269				-				629				-
Foreign exchange loss					(192	)			(199	)			(204	)			(403	)
Income before income tax					9,870				8,775				35,114				18,685
Deferred income tax expense					(1,008	)			(548	)			(2,149	)			(216	)
Net income					8,862				8,227				32,965				18,469
Other comprehensive  income (loss)
Items that will not be reclassified subsequently to profit or loss:
Unrealized loss on equity securities					(2	)			(1	)			(4	)			(60	)
Deferred tax benefit					-				-				-				7
Other comprehensive loss					(2	)			(1	)			(4	)			(53	)
Total comprehensive income					8,860				8,226				32,961				18,416
Basic earnings per share					0.09				0.08				0.32				0.19
Diluted earnings per share					0.09				0.08				0.32				0.19
Weighted average shares outstanding		8
Basic					102,945,350				98,732,615				102,329,945				98,266,916
Diluted					103,501,006				99,329,230				102,934,823				98,952,729

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

MAG SILVER CORP.
Condensed Interim Consolidated Statements of Financial Position
As at September 30, 2023
(In thousands of US dollars, unless otherwise stated - Unaudited)
		Note			September 30, 2023				December 31, 2022
					$				$
Assets
Current assets
Cash					58,519				29,955
Accounts receivable		5			1,014				708
Prepaid expenses					1,335				1,232
					60,868				31,895
Non-current assets
Investments					7				11
Investment in Juanicipio		6			392,629				338,316
Exploration and evaluation assets		3,7			48,119				37,259
Property and equipment					312				348
					441,067				375,934
Total assets					501,935				407,829
Liabilities
Current liabilities
Trade and other payables					3,286				2,542
Current portion of lease obligation					137				121
Flow-through share premium liability		9			2,357				-
					5,780				2,663
Non-current liabilities
Lease obligation					31				140
Deferred income taxes					5,070				2,921
Provision for reclamation					484				409
Total liabilities					11,365				6,133
Equity
Share capital		8			614,038				559,933
Equity reserve					20,598				18,790
Accumulated other comprehensive income					780				784
Deficit					(144,846	)			(177,811	)
Total equity					490,570				401,696
Total liabilities and equity					501,935				407,829
Commitments and contingencies		15
Subsequent events		16

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

 

 

MAG SILVER CORP.

Condensed Interim Consolidated Statements of Cash Flows

For the three and nine months ended September 30, 2023 and 2022

(In thousands of US dollars, unless otherwise stated - Unaudited)

                 

 

				For the three months ended,								For the nine months ended,
				September 30,				September 30,				September 30,				September 30,
				2023				2022				2023				2022
		Note		$				$				$				$
OPERATING ACTIVITIES
Net  income					8,862				8,227				32,965				18,469
Items not involving cash:
Amortization of flow-through premium liability		9			(269	)			-				(629	)			-
Depreciation and amortization					133				34				201				102
Deferred income tax expense					1,008				548				2,149				216
Exploration and evaluation assets written down					-				-				-				10,471
Income from equity accounted Investment in Juanicipio		6			(13,692	)			(11,781	)			(44,030	)			(37,890	)
Share-based payment expense		8			822				1,113				2,597				2,318
Unrealized foreign exchange loss					129				97				102				313
Movements in non-cash working capital
Accounts receivable					281				(212	)			229				(317	)
Prepaid expenses					642				546				(104	)			(963	)
Trade and other payables					783				166				288				(675	)
Net cash used in operating activities					(1,301	)			(1,262	)			(6,232	)			(7,956	)
INVESTING ACTIVITIES
Exploration and evaluation expenditures		7			(3,811	)			(3,554	)			(10,053	)			(7,394	)
Acquisition of Gatling Exploration, net of cash acquired		3			-				-				-				(2,653	)
Investment in Juanicipio		6			(53	)			(171	)			(25,376	)			(489	)
Receipt of principal and interest on loans to Juanicipio		6			11,295				86				14,589				215
Proceeds from disposition of equity securities					-				-				-				1,111
Purchase of equipment					(19	)			(22	)			(19	)			(35	)
Net cash from (used in) investing activities					7,412				(3,661	)			(20,859	)			(9,245	)
FINANCING ACTIVITIES
Issuance of common shares upon exercise of stock options		8			-				-				225				32
Issuance of common shares, net of share issue costs		8			136				-				39,541				-
Issuance of flow-through shares, net of share issue costs		8			-				-				16,208				-
Payment of lease obligation (principal)					(33	)			(28	)			(94	)			(81	)
Net cash from (used in) financing activities					103				(28	)			55,880				(49	)
Effect of exchange rate changes on cash					(359	)			(197	)			(225	)			9
Increase (decrease) in cash during the period					5,855				(5,148	)			28,564				(17,241	)
Cash, beginning of period					52,664				44,655				29,955				56,748
Cash, end of period					58,519				39,507				58,519				39,507

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

 

 

 

MAG SILVER CORP.
Condensed Interim Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2023 and 2022
(In thousands of US dollars, except shares - Unaudited)
																Accumulated
				Common shares												other
				without par value								Equity				comprehensive								Total
				Shares				Amount				Reserve				income				Deficit				equity
		Note						$				$				$				$				$
Balance, January 1, 2022					97,809,441				543,927				18,215				1,798				(196,419	)			367,521
Stock options exercised					100,678				1,399				(362	)			-				-				1,037
Stock options exercised cashless					24,247				432				(432	)			-				-				-
Restricted and performance share units converted					98,012				1,147				(1,147	)			-				-				-
Deferred share units converted					86,295				871				(871	)			-				-				-
Shares issued on acquisition of Gatling Exploration					774,643				11,212				-				-				-				11,212
Shares issued in settlement of Gatling Exploration
liability					63,492				945				85				-				-				1,030
Share-based payment					-				-				3,302				-				-				3,302
Transfer of gain on disposal of equity securities
at FVOCI to deficit, net of tax					-				-				-				(964	)			964				-
Other comprehensive income loss					-				-				-				(50	)			-				(50	)
Net income					-				-				-				-				17,644				17,644
Balance, December 31, 2022					98,956,808				559,933				18,790				784				(177,811	)			401,696
Stock options exercised		8			21,346				292				(67	)			-				-				225
Restricted and performance share units converted		8			96,009				994				(994	)			-				-				-
Issued for cash, net of flow-through share
premium liability		8			3,874,450				56,761				-				-				-				56,761
Share issue costs		8			.				(3,942	)			-				-				-				(3,942	)
Share-based payment		8			-				-				2,869				-				-				2,869
Other comprehensive loss					-				-				-				(4	)			-				(4	)
Net income					-				-				-				-				32,965				32,965
Balance, September 30, 2023					102,948,613				614,038				20,598				780				(144,846	)			490,570
Balance, January 1, 2022					97,809,441				543,927				18,215				1,798				(196,419	)			367,521
Stock options exercised					3,125				39				(7	)			-				-				32
Stock options exercised cashless					16,702				165				(165	)			-				-				-
Restricted and performance share units converted					78,895				778				(778	)			-				-				-
Deferred share units converted					25,000				218				(218	)			-				-				-
Shares issued on acquisition of Gatling Exploration					774,643				11,212				-				-				-				11,212
Shares issued in settlement of Gatling Exploration
liability					63,492				945				85				-				-				1,030
Share-based payment					-				-				2,354				-				-				2,354
Transfer of gain on disposal of equity securities
at FVOCI to deficit, net of tax					-				-				-				(964	)			964				-
Other comprehensive loss					-				-				-				(53	)			-				(53	)
Net income					-				-				-				-				18,469				18,469
Balance, September 30, 2022					98,771,298				557,284				19,486				781				(176,986	)			400,565

 

 

 

See accompanying notes to the condensed interim consolidated financial statements

 

 

 

 

 

1.

NATURE OF OPERATIONS

 

MAG Silver Corp. (the “Company” or “MAG”) is a growth-oriented Canadian exploration company focused on advancing high-grade, district scale precious metals projects in the Americas. MAG is the ultimate parent company of its consolidated group, was incorporated on April 21, 1999, and is governed by the Business Corporations Act of the Province of British Columbia (“BCABC"). MAG’s shares are listed on both the Toronto Stock Exchange in Canada and the NYSE American, LLC in the United States of America.

 

The Company’s principal asset is a 44% interest in the Juanicipio Mine (Note 6 “Investment in Juanicipio”) located in Zacatecas, Mexico, which achieved commercial production at its 4,000 tonnes per day (“tpd”) processing facility on June 1, 2023.

 

Address of registered office of the Company:

2600 – 595 Burrard Street

Vancouver, British Columbia,

Canada V7X 1L3

 

Head office and principal place of business:

770 – 800 West Pender Street

Vancouver, British Columbia,

Canada V6C 2V6

 

2.

MATERIAL ACCOUNTING POLICY INFORMATION

 

(a)

Statement of compliance

 

These condensed interim consolidated financial statements (“Interim Financial Statements”) are prepared under International Accounting Standards 34 Interim Financial Reporting (“IAS 34”) in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). They do not include all of the information required for full annual IFRS financial statements and therefore should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022.

 

The accounting policies applied in the preparation of the Interim Financial Statements are consistent with those applied and disclosed in the Company’s audited consolidated financial statements for the year ended December 31, 2022.

 

These Interim Financial Statements have been prepared on a historical cost basis except for the revaluation of certain financial instruments, which are stated at their fair value.

 

These Interim Financial Statements were authorized for issuance by the Board of Directors of the Company on November 9, 2023.

 

 

(b)

Significant accounting judgments and estimates

 

The Company makes certain significant judgments and estimates in the process of applying the Company’s accounting policies. Management believes the judgments and estimates used in these condensed interim consolidated financial statements are reasonable; however, actual results could differ from those estimates and could impact future results of operations and cash flows. The areas involving significant judgments and estimates have been set out in Note 5 of the audited consolidated financial statements for the year ended December 31, 2022, except as noted herein.

 

Declaration of commercial production at Juanicipio

 

The Juanicipio mine and related mining infrastructure achieved commercial production on January 1, 2022. Following a successful commissioning period, the Juanicipio processing facility had been operating at approximately 85% of its nameplate of 4,000 tpd with silver recovery consistently above 88%. With all major construction activities completed and the Juanicipio mine, processing facility and other vital systems all operating in line with, or rapidly approaching design capacity (Juanicipio demonstrating its ability to sustain ongoing production levels), commercial production at the Juanicipio processing facility was declared effective June 1, 2023.

 

With the declaration of commercial production, Juanicipio began depreciating all assets related to processing and associated facilities. In addition, the Company commenced depreciating exploration expenditures at Juanicipio that were capitalized in accordance with the Company’s accounting policies as well as project oversight expenditures incurred by MAG (Note 6).

 

3.

ACQUISITION OF GATLING EXPLORATION INC.

 

On March 11, 2022, the Company entered into a Definitive Arrangement Agreement with Gatling Exploration Inc. (“Gatling”) to acquire all of the issued and outstanding common shares of Gatling with the issuance of common shares of the Company and the advancement of a Canadian dollar (“C$”) $3 million convertible note receivable. On May 20, 2022, the Company completed the acquisition of Gatling by way of a court-approved plan of arrangement under the BCABC (the “Transaction”), pursuant to which Gatling became a wholly-owned subsidiary of the Company and the Company thereby acquired a 100% interest in the Larder Project (the “Larder Project”). Under the terms of the Transaction, each former Gatling shareholder received 0.0170627 of a common share of the Company in exchange for each share of Gatling held immediately prior to the Transaction. Holders of options and warrants to acquire common shares of Gatling received replacement options and warrants, respectively, entitling the holders thereof to acquire common shares of the Company, based on, and subject to, the terms of such options and warrants of Gatling, as adjusted by the plan of arrangement.

 

MAG issued a total of 774,643 common shares to the shareholders of Gatling in connection with the Transaction. The Company also issued 43,675 replacement stock options and 53,508 replacement warrants (Note 8). A portion of the liabilities of Gatling related to change of control payments to Gatling executive management was settled by the issuance of 63,492 common shares of the Company.

 

 

The Company has determined that the Transaction did not meet the definition of business combination under IFRS 3, Business Combinations and accordingly, has been accounted for as an asset acquisition.

 

The purchase price allocation requires management to estimate the relative fair value of identifiable assets acquired and liabilities assumed.

 

The following tables summarize the fair value of the consideration given and the relative fair values of identified assets and liabilities recognized as a result of the Transaction.

 

Total shares issued on close:			774,643
			$
MAG share price - C$			18.54
USD exchange rate			0.7807
MAG share price - US$			14.47
Value of shares on close of Transaction			11,212
Value of convertible note receivable			2,392
Value of replacement options and warrants			85
Transaction costs			350
Value of consideration paid			14,039

 

 

Identified assets acquired and liabilities assumed			$
Assets
Cash and cash equivalents			89
Receivables, prepaids and deposits			115
Exploration and evaluation assets			15,187
Total Assets			15,391
Liabilities
Accounts payable and accrued liabilities			1,315
Lease liabilities			37
Total Liabilities			1,352
Net assets acquired			14,039

 

 

 

4.

GENERAL AND ADMINISTRATIVE EXPENSES

 

						For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2023				2022				2023				2022
		$				$				$				$
Accounting and audit			277				110				606				294
Compensation and consulting fees			1,727				957				3,949				2,980
Depreciation and amortization			133				34				201				102
Filing and transfer agent fees			62				7				342				323
General office expenses			171				51				561				414
Insurance			334				530				1,162				1,483
Juanicipio oversight costs			332				-				332				-
Legal			110				74				344				244
Share-based payment expense (see Note 8)			822				1,113				2,597				2,318
Shareholder relations			87				90				276				284
Travel			39				37				229				113
			4,094				3,003				10,599				8,555

 

5.

ACCOUNTS RECEIVABLE

 

		September 30,				December 31,
		2023				2022
		$				$
Receivable from Minera Juanicipio (Notes 6 & 14)			643				323
Value added tax ("IVA" and "GST")			367				382
Other receivables			4				3
			1,014				708

 

6.

INVESTMENT IN JUANICIPIO

 

Minera Juanicipio was created for the purpose of holding the Juanicipio property, and is held 56% by Fresnillo plc (“Fresnillo”) and 44% by the Company. On December 27, 2021, the Company and Fresnillo created Equipos Chaparral in the same ownership proportions. Equipos Chaparral owns the processing facility and mining equipment which is leased to Minera Juanicipio. Minera Juanicipio and Equipos Chaparral are collectively referred to herein as “Juanicipio,” and in reference to the mine, the “Juanicipio Mine.”

 

Juanicipio is governed by a shareholders’ agreement and by corporate by-laws. All costs relating to Juanicipio are required to be shared by the Company and Fresnillo pro-rata based on their ownership interests in Juanicipio, and if either party does not fund pro-rata, their ownership interest will be diluted in accordance with the shareholders’ agreement and by-laws.

 

 

Fresnillo is the operator of Juanicipio, and with its affiliates, beneficially owns 9,314,877 common shares of the Company as at September 30, 2023, as publicly reported by Fresnillo.

 

The Company has recorded its Investment in Juanicipio using the equity method of accounting. The recorded value of the investment includes the carrying value of the deferred exploration, mineral and surface rights, Juanicipio costs incurred by the Company, the required net cash investments to establish and maintain its 44% interest in Juanicipio, and the Company’s 44% share of income (loss) from Juanicipio.

 

Changes during the period of the Company’s investment relating to its interest in Juanicipio is detailed as follows:

 

		Nine months ended				Year ended
		September 30,				December 31,
		2023				2022
		$				$
Balance, beginning of period			338,316				291,084
Juanicipio oversight expenditures incurred 100% by MAG			384				719
Amortization of Juanicipio's oversight expenditures incurred 100% by MAG			(171	)			-
Cash contributions and advances to Juanicipio (see Note 14)			24,992				8,140
Loan repayment from Juanicipio (see Note 14) (2)			(8,800	)			-
Total for the period			16,405				8,859
Income from equity accounted Investment in Juanicipio			44,030				40,767
Interest earned, net of recontributions, reclassified to accounts receivable (1)			(6,122	)			(2,394	)
Balance, end of period			392,629				338,316

 

(1) A portion of the Investment in Juanicipio is in the form of interest bearing shareholder loans. For the nine months ended September 30, 2023, the Company earned interest, net of recontributions, amounting to $6,122 (year ended December 31, 2022: $2,394), which has been reclassified to accounts receivable, and $5,789 of interest payments were received from Juanicipio (December 31, 2022: $3,564).

 

(2) During the three and nine months ended September 30, 2023, a $7,251 loan to Juanicipio was converted into equity (December 31, 2022: nil).

 

 

 

A summary of financial information of Juanicipio (on a 100% basis reflecting adjustments made by the Company, including adjustments for differences in accounting policies) is as follows:

 

Juanicipio Statements of Income

 

		For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2023				2022				2023				2022
			$				$				$				$
Sales			125,046				49,715				311,303				169,855
Cost of sales:
Production cost			43,782				18,127				125,731				46,108
Depreciation and amortization			21,646				6,376				47,001				15,052
Cost of sales			65,428				24,503				172,732				61,160
Gross profit			59,618				25,212				138,571				108,695
Consulting and administrative expenses			(3,458	)			(1,192	)			(9,116	)			(4,100	)
Extraordinary mining and other duties			(1,635	)			(64	)			(3,532	)			(276	)
			54,526				23,956				125,924				104,319
Exchange gains (losses) and other			419				1,953				(2,414	)			1,895
Interest expense			(5,214	)			(369	)			(13,915	)			(1,109	)
Income tax (expense) benefit			(23,824	)			825				(23,441	)			(20,101	)
Net income			25,907				26,365				86,154				85,004
MAG's 44% portion of net income			11,399				11,601				37,908				37,402
Interest on Junicipio loans - MAG's 44%			2,293				180				6,122				488
MAG's 44% equity income			13,692				11,781				44,030				37,890

 

 

 

Juanicipio Statements of Financial Position

 

		September 30,				December 31,
		2023				2022
		$				$
Assets
Current assets
Cash and cash equivalents			23,434				1,102
Value added tax and other receivables			11,759				13,945
Income tax receivable			15,100				-
Concentrate sales receivable			54,994				24,098
Inventories
Stockpiles			6,339				26,020
Metal concentrates			2,891				-
Materials and supplies			17,667				10,081
Prepaids and other assets			6,360				7,756
			138,544				83,002
Non-current assets
Right-of-use assets			1,803				1,336
Mineral interests, plant and equipment			794,275				779,735
Deferred tax assets			8,472				11,259
			804,549				792,330
Total assets			943,094				875,332
Liabilities
Current liabilities
Payables			22,774				34,678
Interest and other payables to shareholders			7,473				13,460
Taxes payable			8,742				36,259
			38,989				84,397
Non-current liabilities
Lease obligation			1,852				1,329
Provisions
Reserves for retirement and pension			54				29
Reclamation and closure			3,519				3,073
Deferred tax liabilities			11,464				22,242
			16,889				26,673
Total liabilities			55,878				111,070
Equity
Shareholders' equity including shareholder advances			887,216				764,262
Total equity			887,216				764,262
Total liabilities and equity			943,094				875,332

 

 

 

Juanicipio Statements of Cash Flows

 

		For the three months ended								For the nine months ended
		September 30,				September 30,				September 30,				September 30,
		2023				2022				2023				2022
			$				$				$				$
Operating activities
Net income			25,907				26,365				86,154				85,004
Items not involving cash
Depreciation			21,646				6,376				47,001				15,052
Deferred income tax expense and special mining duty			23,824				(825	)			23,441				20,101
Interest incurred on loans			5,214				369				13,915				1,109
Other			1,017				1,421				2,661				2,212
Income tax and special mining duty payments			(21,257	)			(3,233	)			(77,053	)			(7,951	)
Change in other operating working capital			996				(14,574	)			(35,094	)			6,110
Net cash from operating activities			57,346				15,899				61,026				121,638
Investing activities
Capital expenditures including plant, mine development and exploration			(16,953	)			(34,448	)			(62,368	)			(121,367	)
Other			430				194				716				345
Net cash used in investing activities			(16,524	)			(34,254	)			(61,652	)			(121,022	)
Financing activities
Loans and other capital provided by shareholders			-				-				56,800				255
Repayments of loans to shareholders			(20,000	)			-				(20,000	)			-
Interest paid to shareholders			(5,670	)			(86	)			(13,157	)			(557	)
Payment of lease obligations			(174	)			(212	)			(552	)			(645	)
Net cash (used in) from financing activities			(25,843	)			(298	)			23,091				(947	)
Effect of exchange rate changes on cash and cash equivalents			(84	)			(676	)			(133	)			(464	)
Increase (decrease) in cash and cash equivalents during the period			14,895				(19,329	)			22,332				(796	)
Cash and cash equivalents, beginning of period			8,540				37,504				1,102				18,972
Cash and cash equivalents, end of period			23,434				18,176				23,434				18,176

 

 

7.

EXPLORATION AND EVALUATION ASSETS

 

(a)

In 2018, the Company entered into an option agreement with a private group, whereby the Company has the right to earn 100% ownership interest in a company which owns the Deer Trail project in Utah. The Company paid $150 upon signing the agreement, $150 in each of 2020 and 2021, and $200 in December 2022. To earn 100% interest in the property, the Company must make remaining cash payments totaling $1,350 over the next 6 years and fund a cumulative of $30,000 of eligible exploration expenditures by 2028 (as of September 30, 2023, the Company has incurred $24,460 of eligible exploration expenditures on the property). As at September 30, 2023, the Company has also bonded and recorded a $484 reclamation liability for the project. Other than the reclamation liability, the balance of cash payments and exploration commitments are optional at the Company’s discretion. Upon the Company’s 100% earn-in, the vendors will retain a 2% net smelter returns (“NSR”) royalty.

 

 

(b)

During the year ended December 31, 2022, through the acquisition of Gatling the Company acquired 100% of the Larder Project in Ontario (Note 3). As at September 30, 2023, the Company incurred $7,749 spend after acquisition costs, of which $2,396 were drilling costs.

 

(c)

In 2017, the Company entered into an option earn-in agreement with a private group whereby the Company could earn up to a 100% interest in a land claim package in the Black Hills of South Dakota. Although the geological prospect of the property remained encouraging, growing negative sentiment towards resource extraction in the area, combined with a slow consultation process resulted in significant challenges being encountered in permitting the property for exploration drilling. The Company provided formal notice that it would not be making the final $150 option payment in May 2022 and concurrently wrote-down the property’s full carrying amount of $10,471 during the year ended December 31, 2022.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the three and nine months ended September 30, 2023 and year ended December 31, 2022, the Company has incurred the following exploration and evaluation expenditures on these projects:

 

		Three months ended				Nine months ended				Year ended
		September 30,				September 30,				December 31,
		2023				2023				2022
		$				$				$
Deer Trail
Option and other payments			75				75				210
Total acquisition costs			75				75				210
Geochemical			109				367				422
Camp and site costs			188				577				713
Drilling			1,540				2,963				6,255
Geological consulting			399				915				964
Geophysical			16				63				325
Land taxes and government fees			178				200				232
Legal, community and other consultation costs			54				296				303
Travel			115				142				167
Total for the period			2,674				5,598				9,591
Balance, beginning of period			22,489				19,565				9,974
Total Deer Trail Project cost			25,163				25,163				19,565
Larder Project
Acquisition (Note 3)			-				-				15,187
Option and other payments			-				-				19
Total acquisition costs			-				-				15,206
Geochemical			141				901				112
Camp and site costs			234				408				127
Drilling			599				1,164				1,232
Geological consulting			766				1,400				450
Geophysical			296				872				314
Land taxes and government fees			14				35				19
Legal, community and other consultation costs			141				308				176
Travel			113				174				58
Total for the period			2,304				5,262				17,694
Balance, beginning of period			20,652				17,694				-
Total Larder Project cost			22,956				22,956				17,694

 

 

 

Black Hills
Geochemical			-				-				5
Camp and site costs			-				-				1
Geological consulting			-				-				127
Geophysical			-				-				3
Land taxes and government fees			-				-				7
Legal, community and other consultation costs			-				-				46
Travel			-				-				2
Total for the period			-				-				191
Balance, beginning of period							-				10,280
Less: Amounts written off			-				-				(10,471	)
Total Black Hills Project cost			-				-				-
Total Exploration and Evaluation Assets			48,119				48,119				37,259

 

Included in exploration and evaluation assets at September 30, 2023 were liabilities for trade and other payables of $1,211 (December 31, 2022: $695).

 

 

8.

SHARE CAPITAL

 

(a)

Issued and outstanding

 

The Company is authorized to issue an unlimited number of common shares without par value.

 

As at September 30, 2023, there were 102,948,613 common shares outstanding (December 31, 2022: 98,956,808).

 

		Three months ended
		September 30,				September 30,
		2023				2022
Basic weighted average number of shares outstanding			102,945,350				98,732,615
Effect of dilutive common share equivalents (1)			555,656				596,614
Diluted weighted average number of shares outstanding			103,501,006				99,329,230
Antidilutive securities (1)			1,135,843				830,303

 

 

		Nine months ended
		September 30,				September 30,
		2023				2022
Basic weighted average number of shares outstanding			102,329,945				98,266,916
Effect of dilutive common share equivalents (1)			604,878				685,813
Diluted weighted average number of shares outstanding			102,934,823				98,952,729
Antidilutive securities (1)			890,926				719,877

 

(1)

For the three and nine months ended September 30, 2023, stock options totaling 752,170 and 515,242 respectively (three and nine months ended September 30, 2022: 551,953 and 451,953 respectively), restricted share units (“RSUs”) totalling 88,212 and 80,223 respectively (three and nine months ended September 30, 2022: 78,715 and 68,289 respectively), and performance share units (“PSUs”) totaling 295,461 and 295,461 respectively (three and nine months ended September 30, 2022: 199,635 and 199,635 respectively), were excluded from the computation of diluted earnings per share due to being out of the money or unvested during the period.

 

On February 7, 2023, the Company closed a $42,558 bought deal public offering and issued 2,905,000 common shares, at a price of $14.65 per common share.

 

On February 16, 2023, the Company closed a $17,133 (C$23,024) bought deal private placement and issued 969,450 common shares on a “flow-through” basis” (as defined in the Income Tax Act (Canada)) (the Flow-Through Shares”), at a price of $17.67 (C$23.75) per Flow-Through Share. The premium paid by investors on the flow-through shares was calculated as $3.08 per share. Accordingly, $2,986 was recorded as flow-through liability (Note 9).

 

The aggregate gross proceeds from the combined bought deal public offering and bought deal private placement amounted to $59,691. The Company paid commissions to underwriters of $3,010 and legal and filing fees totalled an additional $932 yielding net proceeds of $55,749.

 

During the nine months ended September 30, 2023, 21,346 stock options were exercised (nine months ended September 30, 2022: 3,125) for cash proceeds of $225 (nine months ended September 30, 2022: $32). In addition, during the nine months ended September 30, 2023 no stock options were exercised under the cashless exercise provision of the stock option plan (nine months ended September 30, 2022: 16,702 shares were issued in settlement of 51,588 stock options and the remaining 34,886 were cancelled).

 

During the nine months ended September 30, 2023, 52,627 PSUs and 43,382 RSUs were converted into common shares (nine months ended September 30, 2022: 73,895 PSUs and 5,000 RSUs).

 

During the nine months ended September 30, 2023, no deferred share units (nine months ended September 30, 2022: 25,000) were converted into common shares.

 

 

During the nine months ended September 30, 2022, the Company issued 774,643 common shares to acquire Gatling (see Note 3). Additionally, 63,492 common shares were issued to Gatling executive management in settlement of change of control liability.

 

(b)

Stock options

 

The Company may enter into Incentive Stock Option Agreements with officers, employees, and consultants. On June 26, 2023, the Shareholders re-approved the Company’s rolling Stock Option Plan (the “Plan”). The maximum number of common shares that may be issuable under the Plan is set at 5% of the number of issued and outstanding common shares on a non-diluted basis at any time, provided that the number of common shares issued or issuable under the combined Plan and Share Unit Plan (Note 8(c)) shall not exceed 5% of the issued and outstanding common shares of the Company on a non-diluted basis. Options granted under the Plan have a maximum term of 5 years. As at September 30, 2023, there were 1,208,376 stock options (December 31, 2022: 1,012,794 stock options) outstanding under the Plan.

 

Stock option grants are recommended for approval to the Board of Directors by the Compensation and Human Resources Committee consisting of three independent members of the Board of Directors. At the time of a stock option grant, the exercise price of each option is set in accordance with the Plan and cannot be lower than the market value of the common shares at the date of grant.

 

The following table summarizes the Company’s option activity, excluding the Gatling replacement options (Note 3), for the period:

 

						Weighted average
		Stock options				exercise price
		activity				(C$/option)
Outstanding, January 1, 2022			988,727				16.77
Granted			230,089				18.86
Exercised for cash			(100,678	)			13.79
Exercised cashless			(105,344	)			16.52
Outstanding, December 31, 2022			1,012,794				17.56
Granted			236,928				16.42
Expired			(20,000	)			19.41
Exercised for cash			(21,346	)			14.12
Outstanding, September 30, 2023			1,208,376				17.37

 

 

During the nine months ended September 30, 2023, 236,928 stock options were granted to employees and consultants (nine months ended September 30, 2022: 220,898) with a weighted average grant date fair value of $1,179 (C$1,596) or $4.97 (C$6.73) per option.

 

The Company determined the fair value of the options using the Black-Scholes option pricing model with the following weighted average assumptions:

 

		Nine months ended				Year ended
		September 30,				December 31,
		2023				2022
Risk-free interest rate			3.53	%			2.58	%
Expected volatility			57	%			61	%
Expected dividend yield			nil				nil
Expected life (years)			3				3

 

The following table summarizes the Company’s stock options, excluding the Gatling replacement options (Note 3), outstanding and exercisable as at September 30, 2023:

 

Exercise price		Number		Number	Weighted average remaining
(C$/option)		outstanding		exercisable	contractual life (years)
13.46		209,432		209,432	0.53
14.98		246,774		246,774	1.41
16.09		6,021		-	4.50
16.43		230,907		-	4.50
17.02		100,000		33,333	3.64
20.20		113,398		37,794	3.52
21.26		50,000		16,666	3.17
21.29		9,191		3,063	3.52
21.57		192,653		128,434	2.19
23.53		50,000		33,333	2.30
13.46 - 23.53		1,208,376		708,829	2.50

 

During the nine months ended September 30, 2023, the Company recorded share-based payment expense of $1,078 (nine months ended September 30, 2022: $1,065) relating to stock options vested to employees and consultants in the period of which $104 (nine months ended September 30, 2022: $36) was capitalized to exploration and evaluation assets.

 

 

 

In 2022, the Company issued 43,675 replacement stock options pursuant to the Gatling acquisition (Note 3) of which 16,629 replacement stock options expired unexercised. The following table summarizes the Gatling replacement options that are outstanding and exercisable as at September 30, 2023:

 

Exercise price		Number		Number		Weighted average remaining
(C$/option)		outstanding		exercisable		contractual life (years)
21.40		1,706		1,706		0.81
21.68 - 21.93		9,986		9,986		0.87
25.80		4,264		4,264		0.31
26.37 - 26.41		11,090		11,090		0.22
21.40 - 26.41		27,046		27,046		0.51

 

(c)

Restricted and performance share units

 

On June 26, 2023, the Shareholders re-approved a share unit plan (the “Share Unit Plan”) for the benefit of the Company’s officers, employees and consultants. The Share Unit Plan provides for the issuance of common shares from treasury, in the form of RSUs and PSUs. The maximum number of common shares that may be issuable under the Share Unit Plan is set at 1.5% of the number of issued and outstanding common shares on a non-diluted basis, provided that the number of common shares issued or issuable under the combined Share Unit Plan and Stock Option Plan (Note 8(b)) shall not exceed 5% of the issued and outstanding common shares on a non-diluted basis. RSUs and PSUs granted under the Share Unit Plan have a term of 5 years unless otherwise specified by the Board, and each unit entitles the participant to receive one common share of the Company subject to vesting criteria, and in the case of PSUs, performance criteria which may also impact the number of PSUs to vest between 0-200%. PSUs for which the performance targets are not achieved during the performance period are automatically forfeited and cancelled.

 

During the nine months ended September 30, 2023, 56,425 RSUs were granted (nine months ended September 30, 2022: 80,535) under the Company’s Share Unit Plan with 18,800 vesting in 12 months, 18,810 vesting in 24 months and another 18,815 vesting in 36 months. The RSUs had a weighted average grant date fair value of $12.13 per RSU (nine months ended September 30, 2022: $14.67) as determined using the fair market value of the common shares on the date of grant.

 

During the nine months ended September 30, 2023, 156,861 PSUs were granted (nine months ended September 30, 2022: 79,156) under the Company’s Share Unit Plan with a five-year term. Of the grant, 117,646 PSUs vest upon the achievement of specified performance targets over a three-year performance period. The remainder of the grant, 39,215 PSUs are subject to a market share price performance factor measured over a three-year performance period, resulting in a PSU payout range from 0% (0 PSUs) to 200% (78,430 PSUs). The PSUs had a weighted average grant date fair value of $12.13 per PSU (nine months ended September 30, 2022: $16.15).

 

 

The three-year performance period for the February 2020 PSU grant ended in February 2023 and resulted in a PSU vesting of 86.3% of target or 72,437 PSUs. Consequently, 11,503 PSUs did not vest and were cancelled.

 

As at September 30, 2023, there were 323,986 PSUs and 114,102 RSUs issued and outstanding (December 31, 2022: 231,254 and 101,059 respectively) under the Share Unit Plan, of which 28,525 PSUs and 25,215 RSUs had vested (December 31, 2022: 23,400 PSUs and 16,415 RSUs) and are convertible into common shares of the Company. Included in the PSUs at September 30, 2023 are 78,314 PSUs with vesting conditions subject to a market share price performance factor measured over a three-year period, resulting in a PSU target vesting range from 0-50% (19,459 PSUs) to 150-200% (136,805 PSUs).

 

During the nine months ended September 30, 2023, the Company recognized a share-based payment expense of $1,142 (nine months ended September 30, 2022: $990) relating to RSUs and PSUs of which $168 (nine months ended September 30, 2022: nil) was capitalized to exploration and evaluation assets.

 

(d)

Deferred share units

 

On June 26, 2023, the Shareholders re-approved a Deferred Share Unit Plan (the “DSU Plan”) for the benefit of the Company’s non-executive directors. The DSU Plan provides for the issuance of common shares from treasury, on conversion of Deferred Share Units (“DSUs”) granted. Directors may also elect to receive all or a portion of their annual retainer in the form of DSUs. DSUs may be settled in cash or in common shares issued from treasury, as determined by the Board at the time of the grant. The maximum number of common shares that may be issuable under the DSU Plan is set at 1.0% of the number of issued and outstanding common shares on a non-diluted basis.

 

During the nine months ended September 30, 2023, 51,849 DSUs were granted under the plan and 5,554 DSUs were granted to directors who elected to receive a portion of their annual retainer in DSUs rather than in cash (nine months ended September 30, 2022: 20,015 and 3,607 respectively). A DSU share-based payment expense of $649 was recorded in the nine months ended September 30, 2023 (nine months ended September 30, 2022: $299). Under the DSU plan, no common shares are to be issued, or cash payments made to, or in respect of a participant in the DSU Plan prior to such eligible participant’s termination date. During the nine months ended September 30, 2023, no DSUs (nine months ended September 30, 2022: 25,000) were converted and settled in common shares. As at September 30, 2023, there are 477,518 DSUs (December 31, 2022: 420,115) issued and outstanding under the DSU Plan, all of which have vested.

 

As at September 30, 2023, assuming 100% of the PSU’s vest, there are 2,123,982 common shares (December 31, 2022: 1,765,222) issuable under the combined share compensation arrangements referred to above (the Plan, the Share Unit Plan and the DSU Plan) representing 2.06% (December 31, 2022: 1.78%) of the issued and outstanding common shares on a non-diluted basis, and there are 6,176,916 (December 31, 2022: 4,172,186) share-based awards available for grant under these combined share compensation arrangements.

 

 

(e)

Replacement warrants

 

In 2022, the Company issued 53,508 replacement warrants pursuant to the Gatling acquisition (Note 3), of which as at December 31, 2022, 34,418 replacement warrants had expired unexercised. During the three and nine months ending September 30, 2023, all of the remaining 19,090 replacement warrants expired unexercised.

 

 

9.

FLOW-THROUGH PREMIUM LIABILITY

 

As at September 30, 2023, the Company has a flow-through share premium liability of $2,357 (December 31, 2022: nil) in relation to the flow-through share financing completed on February 16, 2023 (see Note 8(a) for full details of the financings). Flow-through shares are issued at a premium, and in the Company’s case, considering the separate offerings for flow-through shares and standard public offering for common shares both made on January 25, 2023, this premium has been calculated as the difference between the pricing of a flow-through share and that of a common share from the public offering made on the same date. Tax deductions generated by the eligible expenditures are passed through to the shareholders of the flow-through shares once the eligible expenditures are incurred and renounced. Below is a summary of the flow-through financing and the related flow-through share premium liability generated.

 

		Shares issued				Flow-through				Premium per flow				Flow-through
						share price				through share price				premium liability
						$				$				$
February 2023 Financing			969,450				17.67				3.08				2,986

 

 

The following table is a continuity of the flow-through share funding and expenditures along with the corresponding impact on the flow-through share premium liability:

 

		Flow-through funding and expenditures				Flow-through premium liability
		$				$
Balance at January 1, 2023			-				-
Flow-through funds raised			17,133				2,986
Flow-through eligible expenditures			(3,609	)			(629	)
Balance at September 30, 2023			13,524				2,357

 

 

 

10.

CAPITAL RISK MANAGEMENT

 

The Company’s objectives in managing its liquidity and capital are to safeguard the Company’s ability to continue as a going concern and to provide financial capacity to meet its strategic objectives. The capital structure of the Company consists of its equity (comprised of share capital, equity reserve, accumulated other comprehensive income and deficit) and lease obligation, net of cash and investments in equity securities as follows:

 

		September 30,				December 31,
		2023				2022
		$				$
Equity			490,570				401,696
Lease obligation			168				261
Cash			(58,519	)			(29,955	)
Investments			(7	)			(11	)
Total			432,212				371,991

 

The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Company may attempt to issue new shares, issue debt and/or acquire or dispose of assets.

 

In order to facilitate the management of its capital requirements, the Company prepares annual expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The annual budgets and any amendments thereto are approved by the Board of Directors. The Company currently does not pay out dividends.

 

The Company has working capital of $55,088 as at September 30, 2023 (December 31, 2022: $29,232). The Company may require additional capital in the future to meet its future project and other related expenditures (Notes 6 and 7). Future liquidity may depend upon the Company’s ability to arrange debt or additional equity financings.

 

As at September 30, 2023, the Company does not have any drawn long-term debt and is not subject to any externally imposed capital requirements.

 

11.

FINANCIAL RISK MANAGEMENT

 

The Company’s operations consist of the acquisition, exploration and advancement of mineral projects in the Americas. The Company examines the various financial risks to which it is exposed and assesses the impact and likelihood of occurrence. These risks may include credit risk, liquidity risk, currency risk, interest rate risk and other price risks. Where material, these risks are reviewed and monitored by the Board of Directors.